Starting a business: Third-party involvement in company formation

Overview

Starting a business in Haiti takes 12 procedures and more than three months. Formal registration of a company is so complicated that the process cannot be completed without using the services of third parties—lawyers and notaries. Company statutes are often drafted by an attorney, then need to be certified by a notary before being submitted for incorporation. The result is an additional cost burden for entrepreneurs trying to navigate the complex process to enter the formal sector. In New Zealand, by contrast, an entrepreneur can complete the entire process of company formation in just a few hours through a single online procedure. The burdensome nature of these entry regulations is surely one of many reasons underlying the fact that Haiti has far fewer registered companies relative to population size—only 4 per 100,000 people in 2012, compared with 1,020 per 100,000 people in New Zealand. Formalization has many benefits. Formally registered companies tend to have greater profits, investments and productivity, while their employees benefit from social security and other legal protections. Yet, in many economies around the world, entrepreneurs continue to face excessively burdensome entry regulation. Formalizing a business may involve multiple interactions with government agencies and with third-party private professionals whose services are either required by law or desirable because of regulatory complexity.

Main Findings

Most of the cost of starting a business comes from the fees of third-party professionals such as lawyers and notaries.

Entrepreneurs use third-party services in business start-up mostly because the process is too complex.

Economies with greater third-party involvement in business incorporation tend to have more businesses operating in the informal sector. They also tend to have less accessible laws and regulations and less efficient systems of civil justice.

Notary services are used in business start-up in 76 of the 189 economies covered by Doing Business.

Latin America and the Caribbean has the largest share of economies where legal services are used in the start-up process.